Sanderson Farms, Inc. (SAFM - Free Report) is on a firm footing, courtesy of its robust endeavors, which have helped this Zacks Rank #1 (Strong Buy) stock surge 54.1% in the past year, outpacing the industry’s growth of 35.1%. Let’s delve deeper into the aspects that make this poultry processing company a promising stock.
Factors Backing Sanderson Farms
Sanderson Farms is benefiting from strength in its poultry products, backed by improved average sales prices. Notably, the company’s top line advanced 13.6% year over year in the fourth quarter of fiscal 2019, courtesy of elevated average sales prices.
The company’s overall market prices for poultry products increased during fiscal 2019 from fiscal 2018. Additionally, market prices of jumbo wings increased 19% from the prior-year quarter’s figure, driven by robust seasonal demand. Also, prices for both leg quarter increased nearly 20.6% year over year. Tray pack sales prices saw a slight improvement in the last reported quarter compared with the year-ago quarter’s level.
Further, management highlighted that protein prices are expected to be higher going in 2020 on the back of worldwide protein deficit caused by African swine fever’s impact on Asian pork supplies. Additionally, increased promotions for chicken sandwiches at quick-serve restaurants as well as higher anticipated beef and pork prices are likely to drive growth in the poultry market in 2020.
Moreover, the company’s export demand has been impressive for a while. Markedly, export sales have been rising for quite some time now. Gross export sales increased 31.8%, 19.6% and 25.8% in fiscal 2019, 2018 and 2017, respectively. Encouragingly, management is optimistic about shipping products to China and expects to derive material benefits from it.
Apart from this, Sanderson Farms’ healthy cash flows have helped it return excess cash to its shareholders in the form of dividends and share buybacks. Notably, the company generated $206.8 million as net cash from operating activities in fiscal 2019, wherein it paid out dividends worth $28.3 million. The company also has a share buyback plan (approved in 2009) underway, extending till 2021.
Sanderson Farms has long been strengthening its product portfolio. The company is known for its processed and prepared chicken products available in varied sizes that are also sold in foreign markets like Mexico, the Middle East and Central Asia.
These factors position Sanderson Farms well to cash in on the prospects.
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